SKorean government plans $15 billion extra budget to boost slowing economy

SEOUL, South Korea – The South Korean government proposed a $15.3 billion stimulus Tuesday to boost slowing growth in Asia's fourth-largest economy.

The stimulus would be South Korea's third-largest supplemental budget ever, exceeded only by those approved after the 1998 Asian financial crisis and the 2008 global financial turmoil.

The Ministry of Strategy and Finance said the budget will be used to cover a tax revenue shortfall, aid small and medium firms, create jobs and boost the stagnant real estate market. The statement said the ministry will submit the 17.3 trillion won ($15.3 billion) plan to parliament on Thursday.

It estimated a tax revenue shortfall of 6 trillion won due to the slower-than-expected economic recovery and another 6 trillion won shortfall from the delay in selling stakes in state-owned banks. The remaining 5.3 trillion won will be a net increase in the government's budget.

In addition to the extra budget requiring a parliamentary approval, the ministry will also use 2 trillion won in state funds that do not need to go through the assembly to stimulate the economy.

The stimulus plan comes after the ministry sharply revised down its growth forecast of South Korea's economy last month.

It said South Korea's economy will expand 2.3 percent this year, instead of 3 percent it had predicted three months earlier, citing the yen's slide that is hurting South Korean exporters, weak consumer sentiment and sluggish capital investment.

The stimulus move underlines how the government is seeking a quick fix to the slowdown. South Korea's economy expanded 2 percent in 2012, the slowest rate in three years, as weak global recovery and trade.

The extra budget will stimulate growth by 0.3 percentage point this year and add 40,000 new jobs, it said.

Despite the government's calls for all-out efforts to boost the economy, South Korea's central bank resisted calls to lower borrowing costs.

Last week, Bank of Korea kept its key interest rate unchanged at 2.75 percent for a sixth month. Gov. Kim Choong-soo said the economy is on track to a slow recovery and the monetary policy is "accommodative" to encourage borrowing and spending.